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Solar energy is Africa’s next big thing! How entrepreneurs can exploit this lucrative but untapped opportunity

Electricity supply in Africa is in a very sorry state. Millions of Africans now have mobile phones with no electricity to charge batteries.

In many countries on the continent, less than 20 percent of the population have access to electricity; the situation is much worse in rural areas where fewer than 5 percent are connected to the grid.

With an average of 325 days of bright sunlight every year, solar power remains one of Africa's most abundant but scarcely used resources. Entrepreneurs like Tanzania's Patrick Ngowi are already making millions from this huge gap between electricity demand and supply.

How bad is Africa's electricity problem?

Did you know that all the 48 countries of Sub-saharan Africa (with a combined population of more than 750 million) generate roughly the same amount of power as Spain (a single country of less than 50 million people)?

Our continent has arguably the worst electric power infrastructure in the world with the lowest scores in power generation, consumption and security of supply! (source: WorldBank).

Take the case of Sara Ruto, a Kenyan rural woman who (like many others in her village) had to take a 3-hour taxi ride to charge her cellphone batteries in the nearest town with electricity.

According to this New York Times article which featured the story, the number of people doing the same thing in surrounding villages was so high that many of them had to leave their phones behind at the charging centre (for up to three days) before returning to pick them.

To fight darkness, up to 80 percent of Africans depend on personal generators, candles and kerosene (paraffin) lamps to provide basic lighting. Let's not even talk about all the other things we desperately need electricity for - iron clothes, pump water, charge mobile phones etc.

According to this World Bank report, the average power consumed per person in Africa every year is only enough to power one 100-watt light bulb for only three hours a day! (photo credit: care2.com)

Those of us reading this who live through electricity shortages everyday fully understand the scale of this problem. We're only quoting research reports for the benefit of Africa's elite and people who don't live on the continent who may find it difficult to grasp the severity of Africa's electricity challenges.

We understand that some countries in the region (like South Africa) have it better than the others. In many other countries, it's just terrible!

Solar 101: A quick introduction to solar energy

Solar power/electricity is produced when the fancy, silver-coloured and shiny sheets (commonly known as ?solar panels' are used to capture and convert the sun's radiation to electricity. These panels (which contain photovoltaic cells) come in different models, shapes and sizes.

In this article, we shall focus on the types of solar panels that are installed on rooftops to generate electricity used by individuals and households.

The short video below provides a great introduction to how solar energy works. It's quite simple, interesting and less than 2 minutes long!

3 Reasons why the solar energy business in Africa will become a trillion-dollar market

We've got a couple of strong reasons why we believe solar energy will power Africa's future.

It's absolutely important that entrepreneurs understand the factors that are driving the demand for solar products and services in Africa. This will better help you to apply your creativity and sound judgment to any business ideas that come to your mind during or after reading this article.

Thousands of villages in Africa are so remote and too spread apart that it would take decades and billions of investment dollars to take electricity to all corners of our continent.

Small towns and villages that were not considered a priority by governments now have a huge demand for electricity. Mobile phones, which have been widely successful in Africa, have changed the profile of power consumption in Africa.

The mobile phone revolution is forcing millions of poor Africans to demand for electricity. More people now depend on their mobile phones to contact relatives, obtain general news and information about farm product prices, and make/receive small money transfers.

Africa does not have the kind of investment and political commitment it will require to connect every corner of the continent to the power grid. It's already too late, no matter how fast this is done.

What Africa needs now is an alternative that is cheap, easy to deploy, decentralized and effectiveenough to provide electricity to millions of people in the shortest possible time. Solar power is the only option that satisfies all these requirements!

Of all the other alternative and renewable sources of energy available for Africa's future - wind, sun and water - the sun (solar power) is the most abundant and free!

Because most of Africa sits on the earth's equator, the sun's radiation reaches many parts of the continent including the remotest parts - villages, mountain tops, anywhere and everywhere! This raw energy already touches the parts of the continent that power grids and infrastructure have still not reached - after many decades!

Solar energy is clearly the fastest way to get all of Africa connected to electric power!

#2 - The demand for cleaner and greener alternative power sources is gaining momentum

A significant portion of electricity generated on our continent is from non-renewable sources like petrol, natural gas, coal and other fossil fuels. These fuels remain expensive and have dangerous effects on our health, the environment and climate.

In fact, at the current rate of consumption and population growth, Africa's estimated petroleum reserves (roughly 60 billion barrels) is not likely to last for very long.

Africa's solar power potential is so huge and has the capacity to generate and supply electricity to Europe and other parts of the world in the near future.

For those who don't know, Africa's solar revolution has already started!

There are also other huge multi-billion dollar investments like the DESERTEC project that plans to set up solar farms in vast areas of the Sahara desert and supply Europe with the generated electricity.

These ambitious and high investment projects prove that solar energy will power the future; and Africa will be the major source of it!

#3 - The cost of buying and installing solar power equipment is falling

Despite all the cool things we've said about solar power, it has not spread as fast as expected because of its cost. ?

The high upfront cost of solar equipment has made it difficult to compete against other sources of power.

Investing in solar energy may have a lot of benefits and save lots of money in the long term, but many African families can simply not afford the high initial capital.

However, all of this is changing. Over the last decade, a lot of progress has been made in solar technology - making it cheaper, reliable and more efficient. As a result, solar power equipment prices have been falling, and are now within the reach of many Africans.

The scale and wonder of Chinese manufacturing is also helping to bring down prices. US and European makers of solar equipment have been facing stiff competition from Chinese solar products.

What can we say - ordinary people get to win in the end as these competitive forces push down prices. ?

In addition to lower manufacturing costs, some African governments have started removing the high import tariffs and levies that helped to make solar panels and equipment expensive in local markets.

In fact, several suppliers now offer flexible financing options that allow people to pay a small fee every month to cover the cost of the equipment and installation. This Pay-As-You-Go strategy is paying off as millions of households can now afford solar power through these little payments.

We are almost at the point where the average cost of solar energy falls below kerosene, petrol, charcoal and other common fuels currently used to produce electricity. As a result of this, it is expected that more people will naturally shift to using solar power full-time!

This is already happening in many rural areas as revealed in this article.

How to start a business in Africa's promising and lucrative solar energy market

The beautiful thing about the solar power market in Africa is that it's relatively new and not everyone really understands it.

The virgin nature of this market gives smart entrepreneurs an early advantage to establish themselves. Although solar equipment requires significant investment in capital, there are smaller niches within this market that can accommodate entrepreneurs with little capital.

There are three broad ways to enter this market and start a business in the solar industry.

These paths are: Wholesale supply, Retail and Installation service contracting. We'll look at each of these groups in turn...

Wholesalersare usually the importers who stock large volumes of solar equipment.

These guys usually import all kinds of materials, equipment, appliances and materials relating to solar energy from overseas manufacturers or major distributors in the USA, Europe and Asia.

As expected, playing at this level requires a significant amount of capital. The exact figures will depend on the type of equipment and volume.

China has become a significant manufacturer of solar products although the quality is often considered to be less desirable.

Retailersare the folks who buy in smaller quantities from wholesalers. They usually don't stock huge quantities of products and often sell directly to consumers.

Unlike the wholesaler who stocks goods in a warehouse or depot, a retailer is likely to sell his products from a shop or stall. Of course, retailers require much less capital to start up and offer a wide range of options to customers.

Installation service contractors are the technical guys who do the actual work of fixing solar panels to rooftops and setting up the entire system to make it work for customers.

Due to their skill, these guys are contracted by individual customers; and work on government and NGO projects. They also help to maintain, service and fix problems relating to solar systems.

While anyone can become a wholesaler or retailer, it takes sound knowledge and practical skills to provide an installation service. The best part is, installation contractors may require no capital to run their business.

If a client wants to install a solar power system, contractors send in their quotes and often get paid to purchase the equipment and materials to be installed.

Although this is the cheapest way to enter this market and start a business, it will require an upfront commitment and investment in your learning about solar power, how it works, related equipment and materials, how to install, maintain and repair the system.

Patrick Ngowi, the 28-year old solar entrepreneur and CEO of Helvetic Solar Contractors based in Tanzania has installed roughly 6,000 small home solar systems, and worked on several government and NGO solar projects across East Africa.

His company's $15 million annual revenue proves that unlocking the value in the solar energy market lies in the hands of those who can put smiles on customers' faces by getting the job done!

For those of you interesting in gaining the knowledge and skills required to take off, I found a free, interesting and very useful resource during our research for this article: https://youtu.be/bzcTFUcXwIY

Author: John-Paul Iwuoha is an author, impact entrepreneur, business strategist and founder of Smallstarter Africa. He works with entrepreneurs and investors to start up and grow businesses in Africa. His work and articles have been featured on several local and international media, including CNN, The Huffington Post, The Africa Perspective Magazine, Business Day and LinkedIn Pulse, among others. He is the co-author of '101 Ways To Make Money in Africa', the widely-acclaimed book which reveals several interesting business ideas, market opportunities, and inspiring entrepreneur success stories across Africa. For the latest updates on business and entrepreneurship across Africa, follow Smallstarter on Twitter, @smallstarters